Shares of Herbalife Ltd (HLF) rose 7.2% yesterday after this nutritionist company reported solid preliminary results for the fourth quarter and full year 2013 on the back of strong fundamentals. The company is scheduled to release its final results on Feb 18. Herbalife also authorized a $1.5 billion buyback of shares, 50% more than initially expected.
Fourth Quarter and Full Year 2013 Guidance
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For the fourth quarter, the company expects adjusted earnings in the range of $1.26 to $1.30 per share, much higher than the Zacks Consensus Estimate of $1.16 and the previous range of $1.11-$1.15 per share announced in the third quarter 2013 conference call. Herbalife also expects net sales to increase approximately 19.8% year over year, in-line with the Zacks Consensus Estimate. The year-over-year increase is higher than the earlier expected growth range of 13.5%-15.5%. Volume points for the quarter are expected to increase approximately 12.7%, higher than the expected year-over-year growth rate range of 10.5%-12.5%.
For full year 2013, Herbalife expects adjusted earnings in the range of $5.35 to $5.39 per share, much higher than the Zacks Consensus Estimate of $5.24 and the previous range of $5.19-$5.23 per share. The company also anticipates net sales to increase approximately 18.5% year over year, in-line with the Zacks Consensus Estimate but better than the prior expectation of 17.0%-17.5% growth. Volume points for the year are expected to increase approximately 13.1%, higher than the expected year-over-year growth rate range of 12.5%-13.0%.
First Quarter and Full Year 2014 Guidance
The company has reiterated its guidance for 2014. The company continues to expect volume point growth in the range of 6.5% to 8.5% and adjusted earnings in the range of $5.45 to $5.65. However, the company expects foreign currency to adversely impact earnings by approximately 10 cents in 2014.
For first quarter 2014, adjusted earnings are expected in a range of $1.24 to $1.28, despite currency headwinds of approximately 20 cents.
During the preliminary results, the company’s board of directors increased the existing share repurchase authorization of $1.5 billion. The company already has $653 million remaining under the previous share repurchase authorization of $1 billion.
The company increased its share buyback activity as a reward to its shareholders after Herbalife came out clean in Dec 2013 when its new auditor PricewaterhouseCoopers (PwC) completed the re-audit of more than three years of Herbalife’s financial statements and found no material changes. This also cleared the way for additional loans to fund stock repurchasing.
Meanwhile, activist investor William Bill Ackman (hedge fund manager of Pershing Square) repeated allegations about unethical practices among Herbalife’s distributors, as per media sources.
Herbalife has been facing accusations since last year by Ackman and the Belgian consumer organization Test-Aankoop regarding its pyramid scheme business model i.e. deceptive marketing practices employed for improving business. The company was accused of making money by recruiting new sales people and not from its sales. However, on Dec 3, 2013, a Belgian court quashed the allegations and stated that the company’s sales model complied with Belgian law. But it seems that Ackman continues to believe that Herbalife is running a pyramid scheme business model.
Ackman sent a letter to its investors on Dec 24 about the improper recruiting methods used by the nutrition company. The billionaire investor also told his clients that Herbalife is likely violating multi-level market restrictions in China. His findings are currently with the regulators but would be disclosed to investors very soon.
Herbalife holds a Zacks Rank #1 (Strong Buy).
Some other stocks worth considering in the retail sector include Conns Inc. (CONN), Tempur Sealy International Inc (TPX) and Haverty Furniture Companies Inc (HVT). While Conns holds a Zacks Rank #1, Tempur and Haverty hold a Zacks Rank #2 (Buy).